The company adopted ASU - Leases (Topic ), as of using the modified retrospective approach, which allows comparative periods to be restated. In addition, the company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the company to carry forward the historical lease classification, reassess whether any expired or existing contracts are or contain leases and to reassess initial direct costs for any existing leases. The company also elected the hindsight expedient to determine the lease terms for existing leases. The election of the hindsight expedient did have a significant impact on the calculation of the expected lease term.

 

The Company leases various office facilities and manufacturing equipment. The Company determines if an arrangement contains a lease at contract inception. An arrangement is or contains a lease if the agreement identifies an asset, implicitly or explicitly, that the Company has the right to use over a period of time. If an arrangement contains a lease, the Company classifies the lease as either an operating lease or as a finance lease based on the criteria defined in ASC

 

Lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. The corresponding right-of-use asset is recognized for the same amount as the lease liability adjusted for any payments made at or before the commencement date, any lease incentives received, and any initial direct costs. The Company’s lease agreements include options to renew, extend or terminate the lease. These clauses are included in the initial measurement of the lease liability when at lease commencement the Company is reasonably certain that it will exercise such options. The discount rate used is the interest rate implicit in the lease or, if that cannot be readily determined, the Company's incremental borrowing rate.

 

Operating lease expense is recognized on a straight-line basis over the lease term and presented within cost of sales on the Company’s consolidated statements of operations. Finance lease right-of-use assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on the Company’s consolidated statements of operations and comprehensive income. Variable rent payments related to both operating and finance leases are expensed as incurred. The Company’s variable lease payments primarily consists of real estate taxes, maintenance and usage charges. The Company made an accounting policy election to combine lease and non-lease components.

 

The Company has elected to exclude short-term leases from the recognition requirements of ASC A lease is short-term if, at the commencement date, it has a term of less than or equal to year. Lease expense related to short-term leases is recognized on a straight-line basis over the lease term. In addition, the company has also elected in accordance with Topic to account for both the lease and non-lease components as a single component and account for it as a lease.

 

The adoption of the new standard resulted in the recording of additional net operating lease right of use assets and operating lease obligations of and respectively on The difference between the operating lease right of use asset and operating lease obligation related to accrued and prepaid rent of which was reclassified to the operating lease right of use asset. The standard did materially impact consolidated net income and had impact on cash flows.